Stock Analysis

Vodafone Qatar P.Q.S.C (DSM:VFQS) Is Doing The Right Things To Multiply Its Share Price

DSM:VFQS
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To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Vodafone Qatar P.Q.S.C (DSM:VFQS) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Vodafone Qatar P.Q.S.C is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.10 = ر.ق575m ÷ (ر.ق7.3b - ر.ق1.7b) (Based on the trailing twelve months to March 2023).

Therefore, Vodafone Qatar P.Q.S.C has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 9.3% generated by the Wireless Telecom industry.

Check out our latest analysis for Vodafone Qatar P.Q.S.C

roce
DSM:VFQS Return on Capital Employed April 27th 2023

Above you can see how the current ROCE for Vodafone Qatar P.Q.S.C compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Vodafone Qatar P.Q.S.C.

SWOT Analysis for Vodafone Qatar P.Q.S.C

Strength
  • Earnings growth over the past year exceeded the industry.
  • Debt is not viewed as a risk.
  • Dividends are covered by earnings and cash flows.
  • Dividend is in the top 25% of dividend payers in the market.
Weakness
  • Earnings growth over the past year is below its 5-year average.
Opportunity
  • Annual earnings are forecast to grow for the next 3 years.
  • Trading below our estimate of fair value by more than 20%.
Threat
  • No apparent threats visible for VFQS.

What Does the ROCE Trend For Vodafone Qatar P.Q.S.C Tell Us?

We're delighted to see that Vodafone Qatar P.Q.S.C is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 10%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 23% of the business, which is more than it was five years ago. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

Our Take On Vodafone Qatar P.Q.S.C's ROCE

As discussed above, Vodafone Qatar P.Q.S.C appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 17% to shareholders. So with that in mind, we think the stock deserves further research.

Like most companies, Vodafone Qatar P.Q.S.C does come with some risks, and we've found 1 warning sign that you should be aware of.

While Vodafone Qatar P.Q.S.C isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Valuation is complex, but we're helping make it simple.

Find out whether Vodafone Qatar P.Q.S.C is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.